In long-run equilibrium of perfect competition, which statement is true?

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Prepare for the OnRamps Economics College Exam with detailed multiple-choice questions and explanations. Strengthen your understanding and boost your performance!

Multiple Choice

In long-run equilibrium of perfect competition, which statement is true?

Explanation:
In long-run equilibrium under perfect competition, price must equal marginal cost and also equal average total cost. Since firms are price takers, marginal revenue equals price, and firms maximize profit where MR = MC. With free entry and exit, economic profits are driven to zero, so price also equals ATC. Putting these together gives P = MC = ATC. This arrangement also implies productive and allocative efficiency: MC = P and MC at the minimum of ATC. If price were above or below MC, entrants or exits would occur until profits vanish; a situation where P = MR > MC would imply positive profits and is not consistent with long-run equilibrium.

In long-run equilibrium under perfect competition, price must equal marginal cost and also equal average total cost. Since firms are price takers, marginal revenue equals price, and firms maximize profit where MR = MC. With free entry and exit, economic profits are driven to zero, so price also equals ATC. Putting these together gives P = MC = ATC. This arrangement also implies productive and allocative efficiency: MC = P and MC at the minimum of ATC. If price were above or below MC, entrants or exits would occur until profits vanish; a situation where P = MR > MC would imply positive profits and is not consistent with long-run equilibrium.

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